Taxation and rotation age under stochastic forest stand value

Abstract

The paper uses both the single rotation and ongoing rotation framework to study the impact of yield tax, lump-sum tax, cash flow tax and tax on interest rate earnings on the privately optimal rotation period when forest value growth is stochastic and forest owners are either risk neutral or risk averse. Under risk neutrality forest owner higher yield tax raises the optimal harvesting threshold and thereby prolongs the expected rotation period. The same qualitative result holds for lump-sum tax and for the tax on interest rate earnings, while the cash flow tax is neutral. Under risk aversion the optimal harvesting threshold is lower and the expected rotation period shorter than under risk neutrality both in the single and ongoing rotation cases. Comparative statics of taxes are similar as under risk neutrality with the exception of cash flow tax, which may not be neutral anymore. Numerical results indicate that the optimal harvesting threshold both as a function of the yield tax and the forest value volatility increases more rapidly under risk neutrality than under risk aversion.JEL Classification: C44, D80, Q23

Progressive Taxation, Tax Exemption, and Irreversible Investment under Uncertainty

“…Proof of Lemma 1: The proof of (4) and (5) is analogous with the proof of proposition 3.1 in Alvarez and Koskela (2007b). It is now clear that the first-order optimality condition characterizing the optimal investment threshold can be expressed as…”

Effects of taxes and climate policy instruments on harvesting of managed forests and on tropical deforestation

“…Modeling framework Topic Literature review or general studies Amacher (1997) -----Review of forest taxation literature Karsenty 2010-----Forest taxation that focuses on tropical forests in Central Africa Ruzicka 2010-----Forest taxation from tropical forest point of view Studies without considering amenity valuation Klemperer (1976) Optimal rotation Tax effects on optimal rotation length Klemperer (1978) Optimal rotation Timber tax equity criteria in setting forest property tax levels Chang (1982) Optimal rotation Taxation effect on optimal forest rotation Chang (1983) Optimal rotation Taxation effect on optimal forest rotation Kovenock (1986) Optimal rotation Effect of land value and income taxation in an Austrian sector of economy Koskela (1989a) Two-period Tax effects on timber supply under timber price uncertainty Koskela (1989b) Two-period Tax effects on timber supply under price uncertainty and credit rationing Ollikainen (1990) Two-period Forest taxation effect on timber supply under interest rate uncertainty and perfect or credit rationed capital market Olllikainen (1991) Two-period Effects of taxes that target non-forest assets on timber supply under timber price uncertainty Ovaskainen (1992) Two-period Forest taxation effect on timber supply and forest management intensity Ollikainen (1993) Two-period Forest taxation and timber supply under interest rate and future timber price uncertainty Ollikainen (1996) Two-period Forest taxation effects on timber supply under endogenous credit rationing Uusivuori (2000) Multi-period utility maximization Neutrality of income taxation in an Austrian sector economy Conrad et al (2005) Multi-period dynamic Tax effects on tropical forest harvesting Namaalwa et al (2007) Dynamic bio-economic Impacts of taxes imposed on forestry income on the level of forest resources utilization in Uganda Alvarez and Koskela (2007) Optimal rotation Effects of forest taxes on optimal rotation under stochastic stand value and risk aversion or neutrality Anthon et al (2008) Single-period utility maximization…”

Regime switching in stochastic models of commodity prices: An application to an optimal tree harvesting problem

“…Over the past two decades some researchers have modeled price as an exogenous factor described by a stochastic differential equation (see Thomson (1992); Plantinga (1998); Morck et al (1989); Clarke and Reed (1989) for example). Others have used stand value (price of wood times quantity of wood), as the stochastic factor, abstracting from physical tree growth, such as in Alvarez and Koskela (2007) and Alvarez and Koskela (2005). The model chosen to describe timber prices can have a significant effect on optimal harvesting decisions and land valuation.…”